EU utilities say plan for CO2 cap on power subsidies will raise costs

BRUSSELS (Reuters) - A group of European utilities said on Monday a plan by EU regulators to curb coal use by putting limits on power subsidies would raise costs, reducing investment in clean energy.

Eurelectric, the lobby group for big power generators, said the European Commission’s proposal to set a cap of 550 grammes of carbon dioxide per kilowatt-hour for new power stations would lead to an additional cost for the power sector of around 50 billion euros (43.94 billion pounds)from 2020 to 2040.

As firms retire existing power generation assets, it said the measure would rule out capacity mechanisms, which aim to provide back-up power capacity to avert blackouts - for many thermal power stations, forcing their early retirement.

Utilities will respond by investing in gas-powered stations, which although cleaner than coal-fired plants still produce greenhouse gases, Eurelectric said.

Citing a study by consultancy Compass-Lexecon, it said the switch from coal to gas power would lead to a 40 percent increase in gas consumption in the bloc’s power sector.

“It will divert investments and do a disservice to Europe’s efforts in delivering the clean energy transition,” Kristian Ruby, Eurelectric’s secretary general, said in a statement.

“Utilities across Europe are investing billions in renewables and other transition-critical solutions.”

The Commission’s proposal is one of the most hotly contested parts of a reform for Europe’s power grid after 2020.

Environmental campaigners have welcomed the proposed CO2 limit on capacity mechanisms as a way to phase out polluting coal and help meet the bloc’s pledge under the Paris climate accord to cut emissions by at least 40 percent by 2030 from 1990 levels.

Last week, a group of energy firms backed the plan.

The cost of renewable energy, such as wind power and solar, is falling rapidly but they can only meet part of countries’ electricity needs because their supplies depend on the weather, and, for now, there are no large scale energy power storage options.

Capacity mechanisms are used in countries such as Britain and France to fund power generation that may not be cost-effective or as clean as wind and solar power but is needed to guarantee supply during periods of peak demand.

(This version of the story clarifies in paragraph 5 that expected rise in gas consumption is only for the EU power sector.)